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19 Dec

Monday December 19, 2016

by

Good morning,

With the exception of the DJIA, stocks sold off this week, led by the financials, materials, energy and Big Pharma.

The telling divergence during the week appeared in the currency market, where significant drops in the yen and euro against the US dollar (post-election) didn’t levitate stocks as would have been expected.  As the yen and euro weakened throughout the week to close Friday at losses of 2.22% and 1.02%, respectively, instead of soaring, the major averages languished, while the go-to names during a risk-on trade, small-caps and transportation issues, sold off.

At the close of trading on Friday, the stock averages settled as follows:

DJIA: 19,843.41; +0.44%

S&P 500: 2,258.07; -0.06%

Nasdaq: 5,437.16; -0.16%

Russell 2000: 1,364.19; -1.72%

DJTA: 9,167.49; -2.55%

The VIX rose 45 ticks to 12.20, a strong reading of unhedged positions going into the coming week.

West Texas Intermediate Crude (WTIC) closed above the $50-per-barrel mark for the third-straight week, at $52.95.  As I’ve stated, once the oil price firms above $50 per barrel, I expect a print of $60 before I expect $40.  We’ll see.

The copper price closed again above $2.50 per pound, at $2.56.  Dr. Copper is a good leading indicator of where the base metals are most likely headed next, so keep an eye on copper.

Precious metals were hammered this week.  Gold and silver prices dropped 2.11% and 4.43%, respectively.  Watch the precious metals; the market is coiling up for a big move higher in the coming weeks.  Word is, premiums in China and India for both metals are as high as 5% for physical gold and 13% for physical silver, in the case of the former.  Physical demand has spiked and shows no sign of abating, as of this weekend.

Now let’s talk about the action in the Treasury market, the market that may determine the fate of stocks in the coming weeks.

The 10-year US Treasury continued to sell off this week, settling at a yield of 2.6%, up 13 basis points.  The spread between the US and Japanese 10-year yields rose another 11 basis points this week to 252 basis points.  Of course, this means the Japanese 10-year note settled at a measly eight basis points for the week, down two basis points .  German 10-year yields closed at 0.365% this week, down 5.1 basis points.

So, as Japanese and German yields dropped this week, the 10-year US Treasury yield continues to climb.  In itself, that is mildly interesting.

But now, let’s look at the comparison of the three 10-year notes since the bottom in yields of the 10-year US Treasury since the July-August time period (see chart, below).  As you can see, German rates have been following US rates on a relative basis since the bottom in US rates post-‘Brexit’ vote.  Notice, however, the rate of the Japanese 10-year note since July-August; it has risen at a much slower rate on a relative basis since Brexit.  

So, someone is selling US Treasuries and German Bunds at an orderly rate consistent with market conditions in both markets.

Okay, that’s step one to this week’s analysis on rates:  A disproportionate amount of US and German sovereign paper is being dumped at a high rate consistent with market conditions.

Step two involves a little experience with the relationship between creditor nations (China/Gulf States) and debtor nations (US and Euro) and the motivations between the two for an equitable agreement as debt is unwound.

Focusing on China (ex-Gulf States), we have a creditor nation that’s calling in its debt.  The question has always been:  How does China unload trillions of US Treasuries and German Bunds without chewing on its own foot and causing debtor nations difficulties by affecting a crash in bonds?

How about selling Treasuries, for example, and taking the proceeds to manipulate the forex market?  I think China is doing just that, and may explain the fantastic drop in US Treasury prices and concurrent and counter-intuitive rise of the US dollar.  

Under normal market conditions, this is not suppose to happen.  Rates rise and currencies drop.  That’s how it usually goes.  

But, then again, the globe has never traded off the gold standard before.  Therefore, creditor and debtor nations have since improvised by ‘manipulating’ market prices of debt and currencies as a ‘hack’ for an un-pegged reserve currency.

Here’s how it works.  China dumps US Treasuries, then partially takes the proceeds from the sale to increases its US dollars currency reserves, thereby reducing the supply of dollars in the forex.  The result of this operation is lower bond prices but a higher cross rate for the dollars across the globe.  Essentially, China is doing the reverse of what the Swiss did when the Swiss wanted a pegged rate between the Swiss franc and euro.

In the case of China, the twist is—unlike the Swiss—the Chinese won’t be accumulating US currency until the problem then accumulates in the PBOC’s forex account; they will be buying gold in larger amounts going forward while the market assumes a stronger US dollar lowers the gold price in US dollars.

Let’s crunch some numbers, and you see that, not only is the Fed reacting to the Chinese, but are held hostage by the Chinese.  

In October, the Chinese began their accelerated selling program of US Treasuries.  The Treasury International Capital report shows a spike in amount sold in October.  

In early October, the 10-year US Treasury sold at 129.79; the yuan cross with the US dollar was 6.6685.  For illustrative purposes, one Treasury unit cost the Chinese 865.50 yuan (129.79 x 6.6685).

Fast forward to today.  The 10-year US Treasury sells at 123.05; the yuan cross with the US dollar is 6.96.  Now, one Treasury unit costs 856.43 (123.05 x 6.96), a tiny drop of 1.05% in yuan terms.  So, far the Chinese are doing just fine during this US Treasury price plunge.

But here is where the Chinese have Shanghaied the US.  As the net proceeds in yuan-equivalents drop 1.05%, the gold market in yuan has dropped 7.6% over the same time period (yuan-8,840 versus yuan-8,079)!  Absolutely beautiful!  

I’ll bet you a lifetime subscription to the LT Report that the Chinese are buying gold, hand-over fist.  And indications from my sources who talk with Shanghai tell me that the Chinese are buying so much gold that the premium for physical gold has reached $45 above spot!  Yes, that’s the retail market, but the wholesale market isn’t supplying the retailers at adequate amounts.

So, here’s the point.  First, ignore the tripe from the mainstream financial press about the reasons for Fed rate hikes and the plans to raise rates further in 2017.  Whether short-term rates rise in 2017 has everything to do with what the Chinese want, not what the debtor (US) wants.  In other words, the Fed isn’t data dependent for its rate decisions; that’s a complete lie.  The Fed is dependent upon the Chinese for its rate decisions.

As an example of the ridiculous narrative about why rates are rising, read this complete tripe from the prestigious Wall Street Journal.  Today, the Journal’s articles and editorials only serves as the source of talking points of propaganda for the minions of the financial industry and media.

And finally, I think a deal was made between the Fed and PBOC on the price of gold, so that the Chinese are able to fully redeem their dollars—just as if the reserve currency (US dollar) was pegged to gold, prior to 1971.  And that’s why I believe the Fed’s proxy in the gold market (JPMorgan), Bank of International Settlements (BIS) and International Monetary Fund (IMF) have been coordinating ‘illegal’ attacks on the gold market, even after being caught doing so.  The goal of these three entities and the Chinese is to conduct a Bretton Woods method of redeeming dollars for gold bullion.  And who knows, maybe a deal was made to help China import cheap oil, too.  When you’re a huge creditor, as China is, the possibilities are endless for satisfying debts due.

My bottom line to this analysis:

    • We’re moving closer to a top in rates in this cycle, so expect a pull back in rates (Treasury price rally).  The Chinese aren’t going to shoot themselves in the foot by triggering a financial crisis.
    • Review those stocks in your portfolio that may be affected by the pull back and watch them carefully.  
    • As far as the overall market is concerned, reversals may be as sharp as the post-election rally was on the way up; which means, you too must remain sharp.
  • Precious metals may explode higher in January, just as they exploded higher at the start of this year.

Okay, onto my stock positions and Watch List.

This Week’s JBP Stock Ideas

SIENTRA (SIEN)

Original report: 12/12/2016

SIEN soared this week by $0.63 (7.65%) on only average volume to close at $8.86 per share, with no news to account for the surge.

Last week I add SIEN to my Watch List, with the thesis for the trade stemming from the company’s return to production after a voluntary six-month work stoppage at its third-party plant in Brazil.  The stock has taken a beating since the late-September announcement regarding the production freeze, sliding as much as 87.5% before staging a comeback of the share price.

Management has indicated that a survey of established customers revealed that almost 100% plan to return to Sientra to purchase the company’s implants as soon as production is restored.  

I believe that very little of the hidden future revenue indicted by the survey results has been priced in the stock, even after SIEN has rallied back up to $8.86 per share.  At $8.86, that’s still a 66.7% discount from the high of $26.67 reached in late-June.

In short, Sientra’s implants are best of breed, which weighed heavily on my decision to watch this stock.  I expect revenue to regain the $10 million-plus per-quarter level, and a stock price of between a $12 to $14 handle by the end of 2017.  Therefore, it’s appropriate that I wait for an opportunity to get into the stock for a longer-term play.  I’ll let you know.

RECENT NEWS

On December 5, SIEN soared to as high as $10.22 (27.6%), following a news release by the company of an FDA pre-market supplement (PSA) approval for the company’s four new implant styles and shapes.  The new implants will be added to its present line of nine offerings.  The company expects to begin delivery in Q4 2017.

Read Sientra’s Quick Fact Sheet

ABOUT SIENTRA

Sientra, Inc., a medical aesthetics company, develops and sells medical aesthetics products to plastic surgeons and patients in the United States.  The company offers a portfolio of silicone gel breast implants for use in breast augmentation and breast reconstruction procedures; and breast tissue expanders.  It also provides body contouring and other implants, including gluteal, pectoral, calf, facial, nasal and other reconstructive implants.  Sientra, Inc. was incorporated in 2003 and is headquartered in Santa Barbara, California.

Source: Finviz.com

TWITTER (TWTR)

Original report: 11/14/2016

On November 5, I alerted a Call position I took in TWTR.

To read my rationale for the Twitter Call, follow the link to my report: ‘Twitter Takeover Play’.

My bet with a Call option includes the possibility a suitor who can fix Twitter’s sluggish attempt to monetize the company better will strike by the expiration of my March 2017 Call.  

At the close of Friday’s trade, the contract settled at $1.29.  The option price took a big hit as well as the underlying stock’s $1.02 fall (-5.19%) this week.  A rally in TWTR may soar the option price once again.  I have three months left until expiration.

ABOUT TWITTER (TWTR)

Twitter, Inc. operates as a global platform for public self-expression and conversation in real time. The company offers various products and services, including Twitter that allows users to create, distribute, and discover content; and Periscope and Vine, a mobile application that enables user to broadcast and watch video live. It also provides promoted products and services, such as promoted tweets, promoted accounts, and promoted trends that enable its advertisers to promote their brands, products, and services; and subscription access to its data feed for data partners.

INVITAE (NVTA)

Original report: 12/05/2016

NVTA closed up this week by $0.06 (+0.83%) to $7.30 per share.  Aside from the company’s usual promotional news releases, there was no news.

On December 7, significant news was released that the company announced at the San Antonio Breast Cancer Symposium (SABCS) the expansion of its Breast Cancer STAT Panel to include a report on genes, ATM and CHEK2, and a faster turnaround time of the reports to as fast as five days.

A day later, on December 8, the company announced a collaboration with TME Research to evaluate the benefits of universal genetic testing of breast cancer patients.  TME Research’s mission is “to improve quality and access to emerging technologies and best practices in breast cancer prevention, diagnosis, treatment and patient care.”  The company partners with more than 300 breast cancer practices throughout the US.  This alliance may turn out to be highly lucrative.

As I stated last week, the rationale behind this stock idea is founded upon the company seeking to lower the cost of genetic testing enough to aid medical professionals with quicker and cost-effective diagnoses, a goal third-party payers have been welcoming with open arms.

Revenue has increased in each quarter since the company began trading on the Nasdaq in Q1 of 2014, with oncology (cancer) testing as the company’s bread-and-butter business—a business which is growing at more than 200% per annum at the company.   

Management expects to become cash-flow positive by 2018, as the growth rate of billable testing has doubled (y-o-y), revenue has nearly tripled, while gross margins have steadily declined.  

At the company’s present billing rate, I expect revenue to easily reach $100 million by the close of 2017, as the number of covered lives (insurance) is expected to increase to 160 million lives by the close of this year, up from 65 million lives in Q3, 41 million lives in Q2, and 5.5 million lives in Q1.  That’s huge.

So far, Invitae’s performance has been astounding, and I expect further blockbuster growth for the company as the level of awareness of the value of its services increases while costs decline.  The company is slated to become the industry leader early on during this new and fast-growing marketplace.

NVTA is on my Watch List for accumulation or to make a trade at, maybe, $6.00, a price of which may become likely during any significant pullback in the major averages.

ABOUT INVITAE (NVTA)

Invitae Corporation, a genetic information company, focuses on bringing comprehensive genetic information into mainstream medical practice to enhance the quality of healthcare. It processes DNA-containing samples, analyzes information about patient-specific genetic variation, and generates test reports for clinicians and their patients using an integrated portfolio of laboratory processes, software tools, and informatics capabilities. The company provides a diagnostic service comprising hundreds of genes for various genetic disorders associated with oncology, cardiology, neurology, pediatrics, and other rare disease areas.

Source: Finviz.com

UNDER ARMOUR (UAA)

Original report: 12/05/2016

After soaring $2.96 (9.86%) during the previous week, UAA dropped this week by $2.60 (-7.88%) on moderate volume to close at $30.39 per share.  The stock was under pressure throughout the week, failing to test the stock’s 50-day moving and 52-week moving averages in a bullish manner.  The stock appears very week, with absolutely no follow through from the previous week’s big move higher.

I’m looking at support at $30 to hold; but, if it doesn’t, significant support won’t come into play until the stock nears $25.  I think, too, a fail at the $30 support level may sound the alarm that UAA has completely lost its premium as the new, hot and iconic brand.  However, the stock’s 2.66-times revenue is at par with Nike’s (NKE) 2.56-time revenue, so I don’t expect the hemorrhaging of the stock price to continue much longer.   

On December 8, Forbes echoed my sentiments of the stock.  In his article, Randy Warren, stated:   

The swoon in the overall stock market in Jan/Feb of 2016 dragged them down significantly. Just after the swoon, the news broke that several key executives were leaving. And perhaps worst of all, as earnings were announced, the discussion became about margin. UAA was planning to invest more heavily in the business which could drag down profit margins. Short sighted investors see this as a negative. Long term investors see this as a positive. But the short sighted were the definite winners in 2016 as the stock continued to struggle. But UAA still has the growth. Most importantly UAA still has Kevin Plank. Expect the stock to rebound to $50 in 2017 which represents a 66% potential gain.

I’m in complete concurrence with Forbes this time.  I, too, believe the company is staging for its next earnings ramp to manifest in the first-half of 2018, which suggests to me that weakness may be bought here for a holding period of as long as a year, if some of my readers are looking for a longer-term hold, as I believe Plank & Company are quite competent to produce results.

ABOUT UNDER ARMOUR (UAA)

Under Armour, Inc. together with its subsidiaries, develops, markets, and distributes branded performance apparel, footwear, and accessories for men, women, and youth primarily in North America, Europe, the Middle East, Africa, the Asia-Pacific, and Latin America. The company offers its apparel in compression, fitted, and loose types to be worn in hot, cold, and in between the extremes. It provides various footwear products, including football, baseball, lacrosse, softball and soccer cleats, slides, performance training, running, basketball, and outdoor footwear.

Source: Finviz.com

NEW GOLD (NGD)

Original report: 12/05/2016

NGD was whacked hard this week, down $0.50 (-13.16) on more than average volume to close at $3.30.  After rallying to as much as a 240% gain from the mid-January lows, NGD has been retracing much of its 2016 gain, along with the entire gold mining sector.  

I covered in the first-half of this report as to where I think the gold price is going to trade in first-half of 2017.  And if I’m correct, NGD may be trading back at $6, or much higher, if/when the gold price tests long-term resistance of $1,400 per ounce in 2017.

Keep in mind, too, in my original report on December 5, I discussed New Gold’s substantial copper mining business.  I ran some numbers and suggested that, not only should traders watch the gold price (in US dollars), traders should follow the copper price.  At today’s prices for both metals, the company’s revenue breakdown between the two metals may reach as much as 35% derived from copper sales.

I also suggested that traders should watch Freeport McMoRan (FCX), a major gold and copper hybrid producer, in addition to the performance of the GDXJ, as NGD is really a hybrid of a typical GDXJ stock and FCX.

The copper price fell $0.08 (-3.14) this week, and has not meaningfully tested the 200-week moving average beyond the week ending December 9, when the post-election rally in the copper price stalled at the $2.75 level.

ABOUT NEW GOLD

New Gold, Inc., a gold mining company, engages in the development and operation of mineral properties. The company’s operating properties include the New Afton gold-silver-copper project located in British Columbia, Canada; the Mesquite gold mine situated in Imperial County, California, the United States; the Peak gold-copper mines in New South Wales, Australia; and the Cerro San Pedro gold-silver mine located in the state of San Luis Potosi, Mexico. It also owns 100% interests in the Rainy River gold project in Ontario, Canada; and the Blackwater gold-silver project in central British Columbia, Canada.

Source: Finviz.com

AMIRA NATURE FOODS (ANFI)

Original report: 11/29/2016

I hold 5,000 shares at a price of $7.76 per share.

ANFI dropped $0.19 (-2.86) to close the week at $6.46 in another week in a string of four down weeks.  The stock now trades within its wide range of support of $6 and $7.

Here’s why I bought the stock:

Amira faced heavy headwinds in the last fiscal year, ending March 2016. Although management suggests present conditions impacting revenue are temporary, lower volumes sold and a negative currency impact (due its international presence) resulted in a disappointing earnings for the period.   Moreover, the company was falsely accused in February 2015 of accounting fraud, the charges of which were dismissed this past summer as groundless.

In the company’s Q1 earnings report, Amira’s message to investors moved forward to seeking to achieve growth.  “We continue to maintain strong relationships with our major customers and now that we have reported our results for fiscal 2016 we look forward to returning to our growth model in 2017 and having a deeper engagement with our investors. Going forward, we continue to see many opportunities in India and around the world to further expand our business and create value for our shareholders.”

On March 23, the company announced that its Basmati rice products will be distributed via Cost Plus World market (subsidiary of Bed Bath & Beyond Inc.), whose 250 stores operate in more than 30 U.S. states.

This announcement come on the heels of the news of late 2015, when the company announced that Amira branded products become available at Shaw’s Supermarkets, Inc., who operates 154 throughout New England.

This summer, together with United Phosphorus Limited, a leading crop protection and seed company, the two companies created a strategic alliance to build a productive rice value chain in India and other parts of the world.  With this alliance, the partnership has achieved full vertical integration in the rice market.

Earlier this year, Amira announced a strategic partnership with MAN Consumer, one of the fastest growing distribution companies in the United Arab Emirates.

As far as the stock is concerned, institutional investors note Amira’s potential for substantial growth, resulting in more hedge funds taking positions.  And the price targets mentioned in many of the institutional reports suggest a potential of a double-digit stock price by the close of 2017, with Jefferies Group among them rating ANFI a ‘Buy’, with a target price of $13.00.

The Play:

Leading up to April 2017, when interim results of the company’s operation will become available, I expect more news to follow along the lines of additional distribution channels and further developments to the company’s vertical integration in its rice business.  

Any series of positive news may rapidly change sentiment in the stock, thereby potentially triggering a significant covering of the stocks 9.41% of the stock’s float held short.  And get this, with 23.9 million shares of the stock’s float held short, the unwind calculates to be equivalent of 21 days of volume!  I don’t see this too often.

I suggest caution, however, as this stock tends to have a high monthly volatility, resulting in large swings to the profit/loss each month.  Therefore, I recommend taking a smaller than a normal percentage stake in this stock.

ABOUT AMIRA NATURE FOODS (ANFI)

Amira Nature Foods Ltd. engages in processing, sourcing, and selling packaged Indian specialty rice. The company provides various types of basmati rice, other specialty rice and value add meals, ready-to-eat snacks, ready-to-heat meals, edible oils, and organic products for retailers under the Amira brand; and non-basmati rice. It also sells bulk commodities, including wheat, barley, legume, maize, sugar, soybean meal, onion, potato, and millet products to trading firms. Amira Nature Foods Ltd. sells its products to buyers in the Asia Pacific, the Middle East, Europe, North Africa, and North America; and distributors and retail chains in India.

Source: Finviz.com

KANDI TECHNOLOGIES (KNDI)

Original report: 12/17/2016

As I alerted on Wednesday, December 14, I bought 7,000 shares of KNDI at $5.44 per share.

Here’s why I bought the stock.

I have traded KNDI earlier this year for a nice profit.  Since then, the stock has come down significantly from the $6 and $8 range, dropping to as low as $3.40 in mid-November amid concerns of a hold to incentive payments due from the Chinese government.

So, what was the result of the hold on the company’s subsidy payment from the Chinese government?

On November 9, Kandi released a compete earnings report disaster.  Revenue crashed to $6.4 million during Q3, down from $50.5 million, or -87%, from Q3 of last year.  The company cited a freeze of incentive payments as the reason for the decline.

Kandi’s primary business is selling electric-vehicle parts to an electric-car joint venture, Kandi Electric Vehicles Group Co., with automaker Geely Automobile Holdings (GELYF).  The partnership is heavily dependent upon subsidies from the Chinese government, whose economic development plans include the development of electric vehicles.

However, because of nationwide investigates by Beijing into fraud allegations across the industry, incentive/subsidy payments throughout the industry have been frozen until the government completes its investigations.  In the case of Kandi Electric Vehicles Group, without government funding, only 184 units of EV products were sold in Q3, a 96.9% decrease, y-o-y.

In response to the dramatic drop to revenue during Q3, Kandi Chairman and CEO, Mr. Hu Xiaoming, stated, “China’s central government preceded a review on the subsidies paid to all the EV manufacturers, which caused the 2015 subsidy payments remain unpaid industry-wide. The delay in subsidy payment heavily impacted the Joint Venture’s production and sales, which resulted in a significant decrease in our EV parts sales.”

Hu further stated that Kandi had been working with government officials and expressed confidence that the subsidies will be coming “soon.”

Earlier, in September, five of Kandi’s rivals were fined and removed from the list of companies eligible for subsidies.

On 29 November, KNDI announced that its wholly-owned subsidiary Kandi Electric Vehicles (Hainan) Co. Ltd received a subsidy payment of RMB 100 million (approximately US$14.5 million) to support its research and development expenditures for a new model of electric vehicle.  This news of a subsidy payment to one of Kandi’s subsidiary suggests to me that the subsidy payment to the joint venture may in fact be sent “soon.”  Why would Beijing clear a Kandi subsidiary but not the partnership?

News on progress of new factory in Hainan:

In the last earnings call, the company announced the following:

“Our Hainan facility construction proceeds smoothly and we have started to install the equipment as scheduled. We also made progress on the designed product in Hainan’s factory. We expect this product could be well received by the market. With respect to the production license for the new energy vehicle, we have accomplished last or fundamental work. We made our endeavors in the application and hope to opt in the license within 2017.”

This news release clearly indicates progress is being made according to the company’s production plans.  I am expecting news from the company at some time between now and mid-2017 regarding the vehicles expected to be produced at the plant.  

Insider buying:

On five separate days, from November 23 through to December 2, CEO/president Hu Xiaoming, 10% owner of Kandi Technologies Group Inc. (KNDI), purchased a total of 230,000 shares at a total transaction cost of more than $1 million.  Hu’s purchase price range of $4.16 and $4.99 suggests to me the range of support for the stock will fall within this range and strongly suggests to me that Hu really does believe that the frozen subsidy payments due the company are, indeed, on the way.

The Play:

With 15.2% of the stock’s float held short, any positive news may drive the price rapidly higher, similar to the 11% price spike on November 29, the day of the news release regarding subsidy payments received related to the Hainan facility.

Currently, support may be found at the $5 level.  I will be looking for a breakout above the $6 level.  The next resistance level may be at $7.

In the meantime, there’s a lot of time for news to be released about the company’s frozen subsidy payments before the company reports Q4 earnings is released, scheduled for early March.  

My question is: if the CEO has bet $1 million on a favorable outcome to Q4 and/or imminent news regarding the company’s frozen subsidy payments, why wouldn’t you follow the CEO with your own stake?

ABOUT KANDI TECHNOLOGIES (KNDI)

Kandi Technologies Group, headquartered in Jinhua, Zhejiang Province, is engaged in the research and development, manufacturing and sales of various vehicle products. Kandi has established itself as one of China’s leading manufacturers of pure electric vehicle (“EV”) products (through its joint venture), EV parts and off-road vehicles.

LIQUIDMETAL (LQMT)

As I alerted on Wednesday, December 14, I bought 100,000 shares of LQMT at $0.196, and plan to increase my stake by an additional $30,000 in the future.  I’ll let you know.  

LQMT is a long-term trade, and has been a winner for me in the past.  On November 1, I sold LQMT for a $4,300 profit from a two-month hold.   

I now expect to be holding the newly-acquired shares for at least six months.  My price target is $0.40, at minimum.  

I attended the new CEO conference call on Thursday (after the close), and believe LQMT is a sleeping giant, with the potential to be profitable and to be listed on the AMEX in the coming years.

WHY I’M LONG LQMT

On March 10, Liquidmetal and DongGuan Eontec Co., Ltd. entered into an agreement, whereby Professor Yeung Tak Lugee Li, Chairman of DongGuan, agreed to purchase up to 405 million shares of LQMT stock for a purchase price of $63.4 million.  

A term of the deal included the purchase of 105 million shares at $0.08 per share for a purchase price of $8.4 million, which did indeed happen on March 10.  An additional term of the deal included the purchase of an additional 200 million shares at $0.15 per share for a purchase price of $30 million, and the purchase of 100 million shares at $0.25 per share for a purchase price of $25 million.  In total, Mr. Li is eligible (board approved the agreement in May) to purchase 300 million shares for a purchase price of $55 million.  

In addition, Liquidmetal issued a warrant for an additional 10,066,809 shares at an exercise price of $0.07 per share.

So, who is Professor Yeung Tak Lugee Li?  He is the Chairman of DongGuan Eontec Co., Ltd., in China.  The company symbol on the Shanghai Exchange is (SHE:300328.SZ), where the shares currently trade at (yuan)14.02, or $2.10 per share.  The market capitalization of DongGuan Eontec is approximately $850 million, and is a highly profitable company, with net profit margins exceeding 10%.  The company manufactures next-generation metals for other commercial enterprises involved with the production of consumer products, just as Liquidmetals is in the business of producing.

In 2012, Li founded Leader Biomedical.  

In 2013, he acquired a majority stake in publicly-traded aap Joints, a division of aap Implantate AG in Berlin, Germany.

In 2014, Li acquired EMCM, a biomaterials contract manufacturer, from aap Implantate.

All of these companies that Li purchased are in the business of developing and manufacturing next-generation metals for commercial products.  Therefore, my stake in LQMT is motivated by the modus operandi of Mr. Li taking LQMT and his plan to move LQMT onto the AMEX.

UPDATE:

And, on Wednesday, December 14, it happened; the company announced that it has named Professor Lugee Li as President and Chief Executive Officer of Liquidmetal Technologies.

“Professor Li has served as a member of the Company’s Board of Directors since March 10, 2016 and is the sole owner of Liquidmetal Technology Limited, a Hong Kong company that is the Company’s largest shareholder,” according to the news release.  “Professor Li will not be taking any compensation as a result of his appointment as President and Chief Executive Officer.”

Now that Li has taken control of Liquidmetals, I expect rapid progress.  This trade idea is very similar to FNMA, in that the stock is at an inflection point. Right now nobody is paying attention to the stock, just as no one was paying attention to FNMA when I bought 40,000 shares of the stock at $1.72.

With Li on board, I’m going to be patient with LQMT, as I expect the stock to start and stop until more news from the company begets more investors and liquidity moves to higher prices during the coming year.

ABOUT LIQUIDMETALS (LQMT)

Liquidmetal® Technologies researches, developments and commercializes amorphous metals. The company’s revolutionary class of patented alloys and processes form the basis of high performance materials in a broad range of medical, military, consumer, industrial, and sporting goods products.  Discovered by researchers at the California Institute of Technology, Liquidmetal alloys’ unique atomic structure enables applications to achieve performance and accuracy levels that have not been possible before.  As the company controls the intellectual property rights with more than 70 U.S. patents, these high performance materials are dramatically changing the way companies develop new products.

Source: Liquidmetals Technologies

Until next time…

Trade Green!

Jason Bond

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